Episode 3, Season II of Budget Talks: Rebuilding Ukraine in the Fourth Year of War
How did Europe manage to house millions of Ukrainians who fled the war? What role does reconstruction play in bringing people back home? Why does every city need a housing bank? And how did replacing pipes save the Mykolaiv water system ₴300 million?
In this new episode of Budget Talks, we explore these and other pressing questions about Ukraine’s recovery. Victor Maziarchuk, Head of the Center for Fiscal Policy Research, and Serhii Sukhomlyn, Head of the State Agency for Restoration and Infrastructure Development, discuss emerging models and fresh approaches to rebuilding the country.
Victor
Welcome to Budget Talks, the podcast where we make complex public finance issues easy to understand. We discuss money, recovery, transparency, and accountability. This podcast is produced with the support of the International Renaissance Foundation. Today’s episode is special. We’ll be talking about infrastructure recovery, on-the-ground work, and the challenges that government institutions face during the rebuilding process. Our guest today is Serhiy Ivanovych Sukhomlyn, Head of the State Agency for Restoration and Infrastructure Development of Ukraine. Welcome, and thank you for joining us.
Serhiy
Thank you for having me.
How the Philosophy of Reconstruction Is Changing in 20254
Victor
I’d like to start with this: How has the philosophy of reconstruction changed in 2025 compared to previous years?
Serhiy
That’s a great question. Three years into the war — a lot has changed in our country during this time. That’s the first thing. Secondly, we’re seeing a gradual decrease in support from our international partners.
We clearly understand now: we must rely on completely new models. We have to approach reconstruction differently, prioritize projects that can stimulate economic growth, help bring people back to Ukraine, and much more.
Maybe we’ll even need to adopt totally new mechanisms and financial models for rebuilding. This could involve more private international businesses joining the recovery efforts. A different model — for example, focusing on leasing rather than building. I’ll talk more about that in a bit. Every project needs to be carefully calculated and assessed. We’re also studying other countries’ experiences — from Croatia to the United Kingdom. In the UK, for instance, there’s a national agency that manages all major public infrastructure projects. Every project goes through a comprehensive evaluation based on what’s called the “5 Case Model.” It measures both the social and economic impact of the project. And if there’s a chance to hand a project over to private business, they always do it — to avoid burdening the national budget.
Victor
In previous years, there were a lot of programs tied to reconstruction efforts — some handled by your agency, others by different government bodies, including regional administrations. How does it feel, being the person who essentially manages a billion dollars for recovery? Although, I should add — most of that money goes toward debt repayments, a third is for road maintenance, and there’s hardly anything left for actual reconstruction, right?
Serhiy
Well, I wouldn’t say there’s nothing left. Take the Mykolaiv water pipeline project, for example — that’s a huge amount, both for the country and for the agency.
Victor
You have 8 billion hryvnias in this year’s budget, right?
Serhiy
Yes, but the needs are enormous. If the state were to transfer all the border crossing points to our agency, we’d be responsible for more than 40 of them. Building or reconstructing all those points would require around 300 million dollars. There are a lot of projects, but, honestly, very little funding available. When I took office, the Vice Prime Minister and I visited Rome. Our European partners promised us 5 billion dollars for recovery this year.
We’re still very much waiting for that money — but as of now, it hasn’t arrived.
Victor
Five billion dollars?
Serhiy
Yes, five billion. Still no sign of it. But you know, sometimes a pause in financing can actually be a good thing. It gives us time to reassess — to rethink our project priorities, build stronger teams, restructure the agency, and develop new institutions that can handle reconstruction much more effectively.
How the Mykolaiv Water Pipeline Project Was Transformed — and Saved Billions of Hryvnias
Victor
That’s a really interesting point about reassessing project needs. And since you brought up the Mykolaiv water pipeline — that’s a huge project, around 8 billion hryvnias. As far as I know, you’ve significantly transformed it, and the cost has been reduced. My first thought was that it must have been due to poor project documentation or inflated prices — which we often see when working with data. Because, let’s face it, when institutions want funding, they tend to design their own projects, and those often include questionable technical solutions. Could you walk us through what actually happened with this one?
Serhiy
It’s a very interesting case. The Mykolaiv pipeline is a great example of why we need to approach these kinds of projects from multiple angles. What do I mean? Well, the core philosophy behind this project was to supply Mykolaiv with drinking water. That’s the obvious first need. But the second consideration — regional needs — often gets overlooked. Southern Ukraine has large areas of farmland that desperately need water for irrigation. And no one had built that into the project — There were no additional pumps or modules at the water intake station to make irrigation possible for farmers. So we started asking deeper questions. First one: does Mykolaiv really need 160,000 cubic meters of water per day?
The feasibility study — actually, there were two of them — didn’t question this assumption. One was done by a Ukrainian company: 8.7 billion UAH. The other, by a French company: about 7.4 billion UAH. Both assumed the city needed 160,000 cubic meters daily. But when we analyzed actual consumption, we saw the city uses between 75,000 and 100,000 cubic meters per day. Even if the war ends, and industry restarts, we figured the realistic upper limit would be 130,000. So we decided to plan for 120,000. Why? Because right now, Mykolaiv loses around 60% of its water through network losses. And the government can’t afford to finance those losses. We had to take that into account when designing the new pipeline.
Victor
Just to clarify: so if 100,000 cubic meters are delivered, 60,000 get lost before they even reach people?
Serhiy
Exactly.
VICTOR
And those losses — people end up paying for them?
Serhiy
Not directly, since regulations don’t allow utilities to include that level of loss in people’s bills — up to 30% is considered acceptable. But in practice, yes — the city budget ends up covering the gap, paying subsidies to local utilities.
That’s hundreds of millions of hryvnias lost every year. So our position was firm — and maybe a little harsh — but necessary. We had to show international partners that this was a serious problem. Mykolaiv is well aware of it. Denmark, for example, already donated new pipes. Now it’s the city’s job to fix its internal losses. Designing for 120,000 cubic meters instead of 160,000 reduced the pipeline cost by 300–350 million hryvnias, just in pipe material. And that’s not all.
The original project didn’t include irrigation capacity, or a proper intake station. They wanted to reuse an old station, but that site couldn’t support the required capacity. Plus, when we looked at it on Google Maps, we saw a residential area had grown around the station — so even if we rebuilt it, we couldn’t get sanitary approval due to lack of buffer zones. And just 300–400 meters uphill? There’s an old emergency wastewater outlet from a neighboring community.
So imagine: you build a modern pipeline, but every time there’s a flood or spill, you’re pulling in contaminated water. So we moved the intake station 800 meters away and designed an entirely new one. It’s a massive project — the soil is tough, and we’re working 8 meters underground, below the water table. Very expensive stuff. Then we found out no one included frequency converters in the original plans — These devices synchronize pump operations, prevent water hammer, and drastically reduce electricity use. So we added them in. Then we discovered a second phase of the old plan included rebuilding Mykolaiv’s reservoir, but the funding was unavailable — and the proposal had many unresolved issues. So we postponed it to Phase 2. That meant we needed to extend the pipeline by 6 more kilometers, because the old plan ended the pipe 6 km short of Mykolaiv. We fixed that.
Next, we analyzed pipe suppliers: local Ukrainian, European, and others. Unfortunately, local technology couldn’t handle large diameters efficiently — One crew could lay just 24–36 meters per day, and we needed 70 km of pipeline. At that pace, it would take 2–3 years to finish. So we studied pipe resistance, flow friction — everything. And thanks to our partners and consultants, we found something shocking: Using the wrong pipe type would’ve cost Mykolaiv 2 billion hryvnias in electricity over 20 years. No one had even done that kind of analysis before. So when people ask why we chose a particular material — we now have solid answers.
Then we added solar power: At the intake and pumping stations, we’re planning to install solar panels in Phase 2. To run the system at nominal load, we’d need two stations of around 700–750 kW, and another of 1.3–1.5 MW. That would cut electricity costs for water in Mykolaiv by 15–18%.
VICTOR
So the solutions you’re proposing today will result in lower costs for people in the future?
Serhiy
Absolutely. Lower tariffs, better reliability — all of it. And here’s the third thing we did. Mykolaiv is working with the European Investment Bank on a project to build new wastewater treatment plants. But after 3 years of limited water use and heavy salt contamination, many of the old systems are badly corroded. So, with help from UNICEF and our own experts, we developed a temporary rehab plan for the current facilities. Otherwise, we’d have a situation where the new pipeline is finished by August — but Mykolaiv still can’t deliver clean water.
So we bundled that upgrade into the overall project — to make sure people get both water and sanitation at the same time. Even with everything we added —
- new intake station
- solar power
- modern water treatment
- smart design
— we’re now expecting the final project cost to be around 6.5 billion UAH.
Compare that to the original 8.7 billion — and that version didn’t include the extra 6 km of pipeline, the intake station, the frequency converters, or anything else. Just adjusting the pipe diameter saved us around 300 million hryvnias.
“We Have the Best Gas Stations in Europe — and Border Checkpoints That Look Worse Than a Kebab Stand”
VICTOR
It seems to me that before we dive into large, complex, and expensive infrastructure projects, this kind of groundwork is exactly what needs to be done — instead of the usual “let’s rush in, start fast, do something quick.”
Could you tell us — are there any other major projects your agency is working on right now or has prioritized?
SERHII
Yes, we already know that the Mykolaiv water pipeline project will end up with cost savings. We’re in discussions with the Ministry of Finance and the Cabinet of Ministers, and our ministry — led by Oleksii Volodymyrovych — supports the idea of reallocating those saved funds to other water infrastructure needs. For example, we have a critical situation in the Myrove and Tomakivka communities in Dnipropetrovsk region. They’ve been without piped water for two years — relying solely on emergency water delivery. Right now, we don’t have the funds to fix this, so we’re working with partners. UNICEF is providing money for the feasibility study, which is being developed now. But we want to do more than just bring them water. We also want to build modular water treatment and wastewater treatment systems.
The reality is that many communities in Ukraine — especially smaller and mid-sized ones — have water problems, but only 32% of wastewater in the country is properly treated. That’s an environmental disaster. Untreated sewage flows into rivers, pollutes ecosystems — and the cycle repeats: dirty water leads to more problems. So we’re now designing scalable models. We’ve brought together a team of engineers from Lithuania, Poland, and Ukraine to work on different types of modular wastewater treatment plants. The goal is to create standardized, fundable projects. We’ll know the cost, the installation timeline, and can roll them out quickly across multiple communities. This way, we can deliver large-scale results at predictable costs. We’re hoping to reallocate funds to support that.
In addition to Myrove and Tomakivka, we also have urgent needs in:
Bucha — a new pipeline is required
Lubny — water is supplied on a limited schedule
A community in Vinnytsia region — 10,000 people receive water only 2 hours a day
Odesa region — there’s a major pipeline that’s been under construction for 10 years
We’re addressing that pipeline now, and at the same time working with local authorities on water and wastewater treatment. We’ve brought in a French company and secured funding from the French government to help communities tackle these challenges.It’s a holistic approach. We’ve often said that money is tight — so let me shift to a different issue: border crossings. One of our big frustrations came from a project where international partners were preparing feasibility studies for several new border checkpoints. They worked on those for over a year. I won’t even mention the cost of those studies. Then — suddenly — we got word in February that the programs were being suspended and there would be no further funding. We realized we’d never receive those feasibility studies. Meanwhile, the government had made border modernization a top priority: Opening new checkpoints, reconstructing Yahodyn, building a new one at Bila Tserkva. Romania is already building a brand-new bridge and related infrastructure on their side — and on our side? Nothing. We were supposed to have that feasibility study by then. So we got creative. We invited some great Ukrainian firms — from Kyiv, Lviv — and told them: “We don’t have any money right now. Maybe we can pay you later. But here’s the deal: this is a high-profile project. You can showcase your experience and your architecture at the gateway to Ukraine.” Because think about it. We have the best gas stations in Europe, so why do our border checkpoints look like shawarma shacks?
VICTOR
Way worse than shawarma shacks, honestly.
SERHII
Exactly. And some of the options our international partners offer — sorry, but they’re just not good enough. They don’t reflect what we need. Meanwhile, in just 2.5 months, our local firms developed five full feasibility studies. And they’re excellent. I’m truly grateful to those companies.
VICTOR
Will those same companies build the checkpoints?
SERHII
No — construction will go through open tenders. But here’s the thing: we won’t build every checkpoint. Let me explain. There are dozens of small crossings that need to be reopened — ones that might only serve 30, 50, or 100 vehicles per day. Do we really need to build expensive infrastructure at all of them? Our partners estimate that upgrading and constructing all border checkpoints would cost around €200 million. And then, something interesting happened. We started talking with a German company that had previously offered us modular housing for displaced people. We’d had a few meetings with them. And I told them: “Sorry, but that time is over. We can’t keep offering people metal boxes. We need to show real respect for people if we want them to come home from Europe. We need to build real housing — because people won’t come back to live in modules.”
Instead, we should offer people housing vouchers or cash certificates, so they can buy proper homes, build lives, stay in Ukraine, and raise families here. At another meeting, the same company proudly told us: “We’ve built 2,700 modular schools and kindergartens in Germany.” That caught my attention. Why would Germany need 2,700 modular schools? So I asked. Turns out, most of those are in small towns with 60 to 80 children. And Germany knows — based on demographic trends — that in 8 to 10 years, that number might drop to 2 or 3 kids. So what do they do? The German government doesn’t buy these modular schools — they rent them. Everything comes turnkey — furniture, equipment, utilities — and the state leases the buildings.
VICTOR
So it’s a form of public-private partnership?
SERHII
Exactly. And the cost of rent in Germany? About €89 per square meter per year. Fully equipped — that’s €7–8 per square meter per month. You look at that and think — why can’t this model work in Ukraine? We need to rebuild hundreds of schools and kindergartens, especially in frontline areas. And here’s another insight. When we looked at birth rate data, we noticed something striking: In Dnipropetrovsk and Zaporizhzhia regions, birth rates are significantly higher than in Kharkiv. That tells us: young people left Kharkiv, and most of those who stayed or arrived are older adults. So I asked the German firm: “What if we rent you the border checkpoints? You calculate the numbers.” Because maybe it’s more cost-effective for us, as a country, to lease checkpoints for 5–7 years at a cost of €15–20 million total, instead of spending €200–300 million upfront on new infrastructure. After all, we keep saying that we’ll join the EU in 5–7 years…
VICTOR
…and if that happens, we won’t even need them.
SERHII
Exactly. Sometimes, a lack of funding and a willingness to study different models leads to much smarter solutions. You start seeing better ways to use resources — and make better decisions.
On Unconventional Housing Solutions Amid Limited Recovery Funding
Victor
This is a very non-standard approach. Traditionally, the process was simple: there’s a project, we build it, maybe tweak a few details here and there — but fundamentally, the approach stays the same.
How do you reach such unconventional decisions — is it through financial constraints, the scale of challenges, or something else? Also, you touched on the issue of housing — both abroad and here in Ukraine.
We have a massive need to rebuild or construct new housing. Could similar non-standard solutions be applied there too?
Serhiy
Absolutely. Today, the Ministry is considering many different models for rebuilding housing. Some programs have already been adopted at the state level, like the e-Recovery initiative, where individuals who lost their homes — even in temporarily occupied territories — can apply for a certificate to receive compensation or assistance. But that’s only one piece of the puzzle. Another model we’re working on is building social municipal housing. It’s based largely on European examples. When we looked into how Europe managed to house millions of displaced Ukrainians so quickly, we found that countries like Denmark and Austria have very strong municipal housing systems. In Austria, for example, up to 40% of apartments in some communities are municipally owned. This gives local authorities the flexibility to offer affordable housing quickly when needed — for newcomers, for critical workers like teachers and doctors, and so on. We believe every Ukrainian city should have its own housing bank — units that cannot be privatized, are only available for rent, and are priced well below the market rate.
This way, communities could attract specialists they need — a physics teacher, a surgeon, a technician for the water utility — by offering affordable housing as an incentive. And it’s normal for a young person to move to a small town, work there for a few years, gain experience, and then maybe move on to a bigger city or a different job later. That’s natural career development. But for this to work, we need a financial model that balances public interests, individual needs, and economic sustainability. That’s why the Ministry, together with the European Investment Bank, is now developing such a model. It involves a combination of grants, low-interest loans, and careful financial planning to ensure that municipal housing projects are viable in the long term. We’ve already conducted expert reviews of proposed land sites in various communities, developed several standardized designs for quick deployment,
and established external verification — for example, the European Anti-Corruption Initiative reviews project budgets to prevent inflated costs or fraud. Each community chooses the design that fits its needs best, and the actual implementation stays at the local level.
There’s also a truly inspiring project called Hansen Village, being built near Kyiv. It’s based on a very different philosophy. Instead of simply giving everything away for free, people are asked to contribute what they can afford —
even a small amount — which gives them dignity and a personal stake in their new community. Hansen Village isn’t just about building houses. It’s about creating a full living environment: housing, social spaces, sports facilities, and — most importantly — local employment opportunities. This approach is vital. We studied cases from other post-conflict regions — for instance, in the Balkans. In one country, after the war, international donors helped rebuild thousands of homes. People returned — but within 6–8 months, most of them left again. Why? Because there were no jobs, no future. That’s why Hansen Village is different. It’s being built precisely in areas where employment is available. We’ve already seen similar projects starting in Zakarpattia, where private businesses are building small towns for displaced persons, using Hansen’s model. And now, larger agricultural holdings are getting involved too. Hansen himself — an American philanthropist — has already invested about 140 million dollars of his own money. And he’s ready to invest even more: he’s planning to raise up to a billion dollars for such villages across Ukraine — combining his own funds with private bank financing. We organized a special seminar where about 20 Ukrainian communities came to learn about this model and explore potential partnerships.
Victor
A lot really depends on the people involved — those who prepare the projects, manage them, oversee their implementation, and maintain them afterwards.
Serhiy
Exactly. When it comes to building Hansen Village, for example, even though the state organizes tenders and various companies compete, at the end of the day, it’s still a business. Companies want to earn a profit — and that’s perfectly normal. Pay salaries, pay taxes — that’s how the economy works. But Hansen operates differently. He builds almost at cost, based on a different philosophy: he’s not just investing money — he’s investing in communities, in people, in rebuilding Ukraine.
How the Restoration Agency Handles Staffing Challenges
VICTOR
Let’s talk about your team. In one of your recent interviews, you mentioned that the agency lacks enough skilled people to handle non-standard, complex tasks.
How are you dealing with staffing? I imagine that’s incredibly tough, especially considering that — based on the Ministry of Finance dashboard — salaries at your agency are almost twice as low as in some ministries.
SERHII
Yeah, it’s definitely not easy. But starting in April, we managed to secure a salary increase — about 25% higher. That’s a big win for us. To give you some perspective consultants hired by our international partners, who do great work and I really appreciate them — they make about three times more than our staff. And they carry much less responsibility. They don’t sign documents, they don’t make final decisions — they advise. And many do it very well. But still — the weight of accountability falls on us. So what do we do? We try to find motivated people — those who genuinely want to be part of something bigger at a certain stage in their life. People who’ll look back and say, “I was part of that. We built it together.” It’s about ambition. It’s about growth. Because when people come through this agency, they’re thrown into real work.
VICTOR
It’s an amazing school of experience.
SERHII
It really is. The tasks are diverse, intense, and high-stakes. And after 2–3 years, those same people become highly sought after. International organizations snap them up — often offering way higher positions. Just recently, we launched a central procurement organization. And now, we’re building a project management group because right now, tasks are scattered, and we need to consolidate expertise under one structure. That way, we can focus on designing strong technical requirements before a project even begins. You know how it usually goes: You visit a construction site — maybe it’s a school or some other public building — and you ask, “Why was it built this way?” The builder says, “That’s how it was designed.” The designer says, “That’s what the technical assignment said.”
And that brings us back to what we discussed with the Mykolaiv pipeline. You’ve got to start with a solid technical task, explore all possible options, and plan every detail carefully. Take our water sector, for example.
This year, we’ll deliver 2 or 3 major pipelines — and we haven’t even started them yet. But I’m confident we will. And the more we show results, the more interest we get from others. Just this past week, a few utilities and even a research institute reached out. An institute that had been overlooked by everyone, but it turns out, they produce amazing research no one else has.
VICTOR
And now you can bring them in?
SERHII
Exactly. They said: “Why don’t we set up a Scientific and Technical Council under the agency? We’ll help you — no charge.” That kind of initiative the gathering of smart, committed people who genuinely care it’s what allows us to keep pushing forward, even when the funding isn’t there. It’s the kind of collaboration that leads to better projects and better decisions.
“Recovery Without Trust Is Impossible”: On Leadership Priorities
VICTOR
And to wrap up — one last question. What are your top priorities as the head of such a crucial agency? And if you don’t mind sharing — when you were offered this position and spoke with the country’s leadership, what goals or expectations were set for you?
SERHII
The main task — and it was made very clear — is to approach reconstruction with responsibility. And to be very careful when it comes to the integrity of the process. Because let’s be honest — there’s no recovery without trust. Without trust, you can forget about support — from the public, from our international partners, from donors. You lose understanding. You lose momentum. That’s why we have to get this right — every step of the way. The second big focus is project efficiency and timelines. We need new approaches — faster, better, more tailored. Let me give you an example: The village of Yahidne, one of the places our agency is rebuilding. We’ve already restored a large number of homes. People are happy. Some of them told us just last week: “Even before the war, we didn’t live this well.”
But we looked around and realized — there’s still more to be done. That’s why villages like Posad-Pokrovske and Yahidne are important test cases for us. They’re teaching us what meaningful recovery looks like. After talking to locals, we found out they didn’t even have a space to gather. The community elder has nowhere to hold meetings. The clinic operates out of a container. Kids have no indoor space to come together. And when veterans return — 17 people from this village are fighting right now — where will they meet? Where can they talk? Or sit down with a psychologist if they need to? There’s no library, no center for people to come together under one roof. So we designed a new model — something that can work not just in Yahidne, but in any rural community. We call it the “village communication center.”
It combines everything:
A small clinic
A public services office (where the elder can meet residents)
Proper, inclusive restrooms
A children’s media and reading room
A library
A common hall where people can gather, watch football, host town meetings — anything.
Because when we rebuild homes — people get new windows and warm walls — and they just go back inside. They close the door and isolate again.
VICTOR
And what’s missing is… communication.
SERHII
Exactly. We need to restart communication within communities. That’s how you drive growth — from the inside out. Right next to the center, we’ve planned a small urban park — it’ll open this summer. A place for kids, families — a space that lives. At one point, we thought about installing solar panels on every individual house. But it turned out to be less efficient than building a single large solar plant. And I’ll be honest — other villages in the same hromada are starting to feel a bit jealous. There are 17 villages, but we’re rebuilding just one comprehensively. Yes, they’ll all be rebuilt eventually. But for now, we need to test the model — understand what works, what doesn’t. Then we’ll adjust our processes and scale. To ease the tension, we proposed something new: “Let’s build a community-wide solar power plant — 3.5 megawatts.” Their local utility will operate it. It will generate income — and that income will be used to subsidize electricity for all 17 villages. For a small community, it’s a powerful idea: They can generate revenue, serve their own people, and build independence. That’s the kind of thinking we need right now.
VICTOR
Thank you so much for this conversation. I wish you and your team strength and success — in your creative thinking, in finding funding, and in building fast, transparent, and meaningful recovery. This has been Budget Talks. Thanks again — and above all, thank you to our defenders, thanks to whom we’re free to do this work and live in a free country.
SERHII
Thank you.
This episode was translated from Ukrainian and adapted into English with the help of artificial intelligence. The text has been reviewed to preserve the meaning and natural flow of the conversation.